OnshoreAccessto Oil and NaturalGasResources

As our economy rebounds, Americans are going to need all forms of energy, including the vast oil and natural gasresources here in America.

America needs a balanced energy policy that promotesenergy efficiency, conservation and greater supplies of all forms of energy, including domestic oil and natural gas.The industry has proven it can develop these resourcessafely and in an environmentally responsible manner in all regions, including on non-park federal lands.

Production of resources from federal lands is essential to providing energy resources necessary to grow the U.S.economy, enhance U.S. energy security, spur the creationof new high-paying American jobs, increase revenue to the federal, state and local governments and improve the U.S. balance of trade. The United States spent $453billion on imported crude oil and other related petroleumproducts in 2008, according to the U.S. Census Bureau.1

According to an ICF International study, developingAmerica’s vast domestic oil and natural gas resourcesthat were kept off-limits by Congress for decades couldgenerate more than $1.7 trillion in government revenueover the life of the resources. Developing these resourceswill also provide 160,000 new jobs in 2030.2

That same new study estimates that if the federalgovernment opened up access to non-park federal land in both Alaska and a portion of the Rocky Mountainstates, in 2030 the United States could produce 1.125million barrels of oil per day and an additional 2.4 billioncubic feet of natural gas per day.

1 U.S. International Trade in Goods and Services, U.S. Census Bureau, U.S. Department of Commerce, February 11, 2008.

2 ICF International Study, Strengthening Our Economy: The Untapped U.S. Oil and Gas Resources, December 2008.

3 USGS Newsroom, April 10, 2008. 3 to 4.3 Billion Barrels of Technically RecoverableOil Assessed in North Dakota and Montana.

There could be much more oil and natural gas onshorethan previously known in areas where industry has beenunable to fully explore, and new technologies allow us to access resources previously thought unreachable.There are many examples of how the government’s initialestimates dramatically underestimated the amount ofactual resources. For example:

• Alaska’s Prudhoe Bay oilfield has produced more than15 billion barrels of oil and natural gas liquids, and isstill producing. Government agencies initially forecastthe region would produce no more than 9 billion barrelstotal.

• In the Bakken Formation of North Dakota and Montana,the U.S. Geological Survey now estimates that theresource may contain up to 4.3 billion barrels oftechnical recoverable oil – a 25-fold increase overprevious estimates.3

Access to Domestic SourcesOil and natural gas are vital to our energy and economic future.

Cover photo courtesy of Devon Energy.

Photo courtesy of Richard Ranger.

According to the U.S. Department of the Interior, in fiscal year 2008, the agency distributed a record $23.4 billion to the federal government, states and American Indiansfrom onshore and offshore energy production. Nearly $22 billion of that amount came from oil and natural gas production.

A total of 35 states received $2.6 billion from theserevenues3 (see list below).

Benefits to the StatesOil and natural gas resources are found in 33 states, and production on non-park federal lands has brought billions of dollars of revenue into federal and state treasuries. These revenues include both the bonus bids companiespay up front to lease federal lands, both on land and infederal waters, as well as the royalties companies pay on the production on these lands. By law, half of the oiland natural gas receipts collected for production in aparticular state are returned to that state.

Alabama $ 15,836,221.38*Alaska $ 38,556,903.53Arizona $ 266,834.26Arkansas $ 13,189,227.20California $ 103,445,963.15Colorado $ 178,377,966.07Florida $ 6,298.00Idaho $ 1,978,855.53Illinois $ 286,561.67Indiana $ 191.50Kansas $ 2,605,367.43Kentucky $ 508,473.37Louisiana $ 49,466,635.80*Michigan $ 1,171,444.97Minnesota $ 13,030.27Mississippi $ 1,572,333.15*Missouri $ 4,561,311.95Montana $ 48,943,889.42

3 U.S. Department of the Interior, November 20, 2008, press release.

Nebraska $ 40,800.27Nevada $ 17,622,148.72New Mexico $ 614,829,204.51North Dakota $ 23,392,224.43Ohio $ 574,971.75Oklahoma $ 7,240,652.39Oregon $ 294,100.53Pennsylvania $ 69,368.41South Carolina $ 277.50South Dakota $ 1,200,905.81Tennessee $ 99.00Texas $ 21,674,057.42*Utah $ 173,839,327.76Virginia $ 227,154.44Washington $ 202,943.33West Virginia $ 776,251.48Wyoming $ 1,270,987,013.51

*Beginning in 2008 Alabama, Louisiana, Mississippi and Texas receive 37.5 percent of all the revenue collected by the MMS from offshore leases in addition to the royalties from onshore operations.

The purchase of a lease is always a gamble. Technologyshows us where accumulations of oil and natural gasmight exist, but the only way to know if there arecommercially viable prospects is to explore.

Sometimes when a lease is not producing, critics claim itis “idle.” Much more often than not, non-producing leasesare not idle at all; they are under geological evaluation orin development and could become an important source of domestic supply.

Companies purchase leases hoping they will hold enoughoil or natural gas to benefit consumers and become economically viable for production. Companies can spendmillions of dollars to purchase a lease and then exploreand develop it, only to find that it does not contain oil and natural gas in commercial quantities. It is not unusualfor a company to spend in excess of $100 million only to drill a dry hole. The reason is that a company usuallyonly has limited knowledge of resource potential when itbuys a lease. Only after the lease is acquired will thecompany be in a position to evaluate it, usually with a very costly seismic survey followed by an exploration well.

If a company does not find oil or natural gas in commercial quantities, the company hands the lease back to thegovernment, incurs the loss of invested money and moves on to more promising leases.

If a company finds resources in commercial quantities, it will produce the lease. But there sometimes can bedelays – often as long as 10 years – for environmental and engineering studies, to acquire permits, to install production facilities (or platforms for offshore leases) and to build the necessary infrastructure to bring the resources to market. Litigation, landowner disputes and regulatory hurdles also can delay the process.

Not-so-Idle LeasesExploration is not a risk-free proposition, but it is an essential part of the energy business.

Shale gas is currently the third largest commercialproduction source of unconventional gas. While it isabundant, it is the most difficult to produce. The gas istypically adsorbed onto clay particles or contained within microscopic pores.

Shale gas formations are often continuous, so a keytechnique in the cost-effective development is identifying the “fairways” – those areas that have a great concentrationof accessible gas. Two important technologies makedevelopment of these fields possible: advanced 3Dseismic technology, which is often used to identify theseareas, and hydraulic fracturing.

• The Barnett Shale in North Texas has emerged as thelargest natural gas field in Texas. Companies developedinnovative techniques to crack open the shale torelease the natural gas sealed inside.

• In northwestern Louisiana, industry interest is focusingon the Haynesville Shale, a new gas exploration playfound at depths of 11,500 to 13,000 feet over an areaextending 70 to 80 miles.

• The newest center of exploration activity is the Marcellusshale in the Appalachian Basin, which stretches fromWest Virginia through Pennsylvania and Upstate NewYork. In 2006, the U.S. Geological Survey estimated thetechnically recoverable natural gas resources to besome 31.42 trillion cubic feet of natural gas plus some562.07 millions of barrels of natural gas liquids. Therugged terrain and thick cover make 3D seismicoperations difficult, so in these areas drilling andtesting wells are more effective.

Coalbed natural gas, sometimes called coalbed methane,and shale gas are called “unconventional gas” simplybecause they are found in formations that do not allow the gas to flow or migrate easily. But natural gas producedfrom these formations account for a substantial amountof U.S. natural gas production.

Coalbed natural gas is found throughout the MountainWest and now accounts for about 8 percent of the (dry)natural gas production in the U.S. Coalbed natural gas is a naturally occurring methane gas with small amounts of carbon dioxide or nitrogen found in coal seams. It isoften produced at shallow depths from coal formationsthrough a well bore that allows gas and large volumes of water to be produced.

Because coalbed natural gas can be reached at shallow depths, the wells drilled to produce it are usually completed in several days.

• The San Juan Basin is the most productive coalbedbasin in North America, totaling 1.1 trillion cubic feet in2006. The area is about 9,000 square miles innorthwestern New Mexico and southwestern Colorado,and it contains about 30,000 producing wells.

• The San Juan Basin supplies 6 percent of the nation’stotal production and is California’s largest supplier ofnatural gas.

Unconventional ResourcesCoalbed natural gas and shale gas resources are a valuablepart of the nation’s energy portfolio.

Unlocking Resources through Science and Technology

Technology has revolutionized the search for oil and natural gas.

Science and technology enables America’s oil and naturalgas companies to access more resources from morechallenging geologic conditions and from more remoteplaces – some previously unreachable – with greatersafety and efficiency, and with significantly less impact on the environment.

SEISMIC: Three dimensional seismic techniques provide industry scientists with data that offer detailed information about the rocks below and their capability to containconcentrations of oil or natural gas. With ultra-moderncomputer imaging, 3D seismic enables geologists andgeophysicists to “see” the subsurface in three dimensions. As a result, exploration drilling is more carefully and more accurately targeted. A much higher percentage ofexploration wells now find oil or natural gas than was thecase just a couple of decades ago. This benefits theenvironment because fewer unsuccessful wells are drilled.

ADVANCED DRILLING TECHNIQUES: Precision drilling has dramatically reduced the surface footprint. Theseadvancements include horizontal and directional drilling toreach resources way beyond the drill site, sometimes up tofour miles from the drilling location. In the past, wells wereonly drilled vertically, requiring many more drilling rigs toproduce the same amount of resources.

• In North Dakota, wells are drilled to 9,000–10,000vertical feet, then reach horizontally for distances upto two miles, threading the 30 foot wide Bakken shaleto allow the best opportunities for producing the crudeoil the Bakken contains.

Flexible rig technology allows companies to drill multiplewells from a single rig on the surface.

• In western Colorado “flex rigs” drill as many as 22directional wells from a single pad, finding natural gasaccumulations contained in the complex weave of riverchannels laid down hundreds of millions of years ago.

With the advancements in computerization, sophisticatedsensing and measuring tools provide real-time informationfrom the wellbore back up to the operators during drillingoperations. These “bottom hole assemblies” are attached

at the end of the drill pipe and they are linked directly to the motors that power and provide rotation to the drill bit. Based on this real-time information, operators makedecisions on the direction of the drilling.

A host of developments in materials used in the drillingprocess, in improvements to horsepower and drilling toolsand equipment, computing capabilities on the rig, andinstant telecommunications between remote rig locationand home office have improved the performance andintegrity of drilling operations. Photovoltaic solar panelsinstalled on the pipe and valve assemblies of completedproducing wells provide electric power to equipment thatmonitors well conditions, and transmits data real timefrom hundreds of wells to a central field office, or toreservoir engineers in a company office hundreds of miles away.

Skilled and experienced personnel operate today’smodern drilling equipment and systems under strictregulatory oversight. In addition they are trained to complywith rigorous company policies and procedures thataddress safety, knowledge of environmental rules andpractices, the ability to respond to emergency situations,and the measures that are most effective in preventingemergencies from occurring.

Photo courtesy of Richard Ranger.

Hydraulic FracturingHydraulic fracturing has been around more than 50 years andhas been used in nearly 1 million wells in the United States. It’s safe and it’s effective in producing more of America’s natural gas resources.While America has tremendous natural gas resources, mostcannot be produced without this technology. According tothe U.S. Department of Energy, using the technique ofhydraulic fracturing, the United States has been able toproduce more than 7 billion barrels of oil and 600 trillioncubic feet of natural gas. And a 2006 government-industry study found that 60 to 80 percent of the wells to be drilled in the next decade will require hydraulic fracturing.4

This technology pumps fluids at high pressure intounderground formations located thousands of feet belowthe surface to create fractures in the producing formation to allow natural gas to flow into a well. A combination ofwater, sand and a small amount of additives make up the fracturing fluids. The sand acts as a “proppant” to holdthe fractures open. As the gas rises, it drives most of thefluids back out of the well. The fluids are either recycled or carefully disposed of under state and federal law.

State regulation of hydraulic fracturing has been in place formore than 50 years. Together with industry standards, the

regulations effectively protect groundwater. Current industrywell design practices provide multiple levels of protectionbetween any sources of drinking water and the productionzone of an oil and gas well. For example, wells are carefullyconstructed using steel pipe cemented to the surroundingrock to ensure isolation and protection of any subsurfacedrinking water sources.

In 2004, the U.S. Environmental Protection Agencyconcluded “the injection of hydraulic fracturing fluids into coal-bed methane wells pose little or no threat to(underground drinking water).” The agency, in a review of incidents of drinking water well contamination believed to be associated with hydraulic fracturing operations, found “no confirmed cases linked to fracturing fluidinjection of CBM (coalbed methane) wells or subsequentunderground movement of fracturing fluid.”

4 Facing the Hard Truths About Energy, the National Petroleum Council, 2007.

Drinking Water Aquifer

Cemented Steel Casing to Protect Aquifer

Impervious Shale Layer

Fractures that Allow Gas to Move

companies that develop resources can be good neighbors,whether they are working out in rural areas or within citylimits.5

Environmental StewardshipResponsible development includes good relationships with ourneighbors, a commitment to environmental protection, andcompliance with all applicable federal, state and local regulations.Technological advancements allow the oil and natural gas industry to conduct operations far more efficiently and with a greater sensitivity to the environment.

Onshore, these protections include:

• Seismic imaging, which provides eyes underground to better assess both the location and the quantityof the resource.

• Technological advancements in drilling that allowcompanies to drill more precisely, leading to fewer drilling rigs on the surface and a smaller “footprint” on the land.

• Safety devices, such as blowout preventers, that protectworkers, the environment and the community.

• Remote monitoring, which allows production operationsto be monitored electronically, reducing traffic to andfrom the production sites.

• Reclamation of the land once the drilling rig is movedand production equipment is in place.

The companies that make up the oil and natural gasindustry also have been recognized by state and federalagencies and conservation organizations for projects toenhance habitat and the environment that demonstratethe sustainable coexistence of wildlife and energydevelopment.

Responsible development also includes goodrelationships with both the landowners and neighbors. Based on work originally done by the oil and natural gas industry in New Mexico, the American Petroleum Institute developed a guidance document that outlines how the

5 API Bulletin 75L, Guidance Document for the Development of a Safety and Environmental Management System for Onshore Oil and Natural Gas Production Operations and Associated Activities, October 2007. This document is available at www.api.org.

www.api.orgwww.energytomorrow.org

API Creative: 2009-037 | 08.09 | PDF